Implications of Recent Federal Changes to the Temporary Assistance for Needy Families (TANF) Program

This document presents a summary of "Implications of Recent Federal Changes to the Temporary Assistance for Needy Families (TANF) Program," a seminar sponsored by the Pew Fund for Health and Human Services in Philadelphia. Held on April 6, 2006, the seminar was part of The Pew Charitable Trusts' information series called Programs Adjusting to a Changing Environment (PACE), created to improve nonprofits' ability to succeed by providing them with critical information, tools, resources, and technical assistance.

In February 2006, Congress passed the Deficit Reduction Omnibus Reconciliation Act of 2005, a budget reconciliation bill that, among other provisions, amended the landmark 1996 welfare reform legislation which had created the Temporary Assistance for Needy Families (TANF) program. TANF provides funding to states for a variety of supports to help families make the transition to work, including cash assistance, child care, education and job training, and transportation. The new 2005 legislation authorizes the TANF block grant through 2010 and revises work participation standards for families receiving TANF assistance-a change that will require states to substantially expand the number of recipients who are engaged in work.

This session examined the implications of the new TANF standards for the state of Pennsylvania and local providers. There were two presentations. Gordon Berlin, President of MDRC, the nation's leading evaluator of welfare-to-work initiatives, described the changes in TANF and the challenges they present nationally; and Estelle Richman, Secretary of Public Welfare for the Commonwealth of Pennsylvania, outlined the specific challenges for Pennsylvania and the kinds of approaches the state is considering. The session concluded with a question-and-answer period.

The New TANF Requirements

In his presentation, "TANF's New Participation Requirements: Implications for the Nation and Pennsylvania," Gordon Berlin noted that while the amended requirements do not at first look very different from the original ones, they are-and the changes have significant implications for states, providers, and participants. These were among his major points about the new requirements:

There is a major change in the way participation rates and standards are calculated. While the basic requirements remain the same as under the original law-50 percent of all families and 90 percent of two-parent families must be involved in some kind of work-related activity for at least 30 hours a week-the new TANF provisions change the way the participation standard each state must meet is calculated. Previously, the baseline for calculating the caseload reduction credit was 1995. As states' caseloads dropped below that level, their required all-family participation rate dropped with it; and since caseloads have dropped approximately 50 percent since 1995, the effective participation rate a state must meet has essentially been zero percent. Under the reauthorized law, the new baseline for calculating a state's caseload reduction credit is the state's 2005 caseload. As a result, there is no caseload reduction credit to be taken: the 50 percent participation rate is now a true 50 percent. In addition, the new law includes a provision that has the effect of adding people to the caseload. Previously, families that received TANF assistance entirely through state funds-called state maintenance of effort dollars-were not included in the calculation of participation rates. Now, however, they will be included.

There are likely to be more rigid definitions of what activities count towards participation. The hourly participation requirements are, for all families, 30 hours a week, and 20 hours if there is a child under six years old; and for two-parent families, 35 hours, and 55 if the family is receiving federally funded child care. There are different requirements for the first 20 hours and for the additional hours. Activities that count for the first 20 hours all focus on work, including unsubsidized or subsidized work and community service. Vocational training also counts, but only for up to a year for each participant, and no more than 30 percent of a state's total participation rate can be based on people counted in this way. (In other words, if a state's actual participation rate is 50 percent, vocational training can count towards participation for a total of 15 percent of people on the caseload.) Job search or job readiness activities also count toward the first 20 hours for up to six weeks a year. For the additional hours, job-skills training counts as an activity, as does education under limited circumstances. While what counts is unchanged from the prior legislation, the details of what is included in each category could change. Previously, states were able to define the specifics, but now the U.S. Department of Health and Human Services (HHS) has been given the authority to write the regulations defining what counts.

The penalties are potentially severe. The penalties are up to five percent of the TANF block grant the first year a state does not meet participation rates, and this can escalate to 20 percent in subsequent years. The new legislation also tightens requirements for reporting procedures-a change that was necessary because states' reporting has often been lax-and there is an additional penalty of up to five percent of the block grant for failing to follow these requirements.

The Challenge of the Participation Rates

According to Berlin, meeting the new participation rates will put a lot of pressure on states to either increase the share of the caseload that is engaged in work activities or reduce their caseloads, thereby activating the caseload reduction credit and reducing the share of the caseload that must be engaged in work. Many states believe that a wider range of activities is necessary to meet the needs of the hard-to-employ and other groups on the caseload. The questions for states are, he said, "Do you let the participation rate drive what you do, for example by pushing everyone into work experience or transitional work? Or do you assess what each participant needs, and offer those services on the theory that in the long run you will increase the share of the caseload that can find work and even leave the rolls?" If states do not meet the participation rates, they will be subject to financial sanctions and the lost funding means, in turn, that they will have fewer resources to do what they need to do. In his discussion of the pressures on states, these were among his major points:

The new rates are probably not achievable by many states. Berlin said it will be difficult to have 50 percent of participants meet the required 30 hours a week of work. To do so, states will have to work with everyone on the caseload, and that means working with more hard-to-employ recipients than in the early years of welfare reform-and fewer of this larger group will be able to move readily from welfare to work than was the case before.

The requirements in the legislation could make it difficult for states to implement the welfare-to-work program strategies that have been shown to have the most positive impacts. MDRC's studies of welfare-to-work programs in the National Evaluation of Welfare to Work Strategies, published in the 1990s, found that a "mixed strategy"-requiring some people to start by looking for work and others to start with education or training-has been most effective. These kinds of programs have led to larger employment increases than either a job-search-first approach or an education-first approach for everyone. With the role of education and training limited in the new law, Berlin is concerned that programs that have demonstrated themselves to be effective will have to be redesigned to meet the new requirements. If the new legislation forces states to "chase participation" and focus on the complexity of managing work experience programs, rather than finding private sector work or helping people obtain the skills they need to become economically self-sufficient over the long term, then the legislation will have unintentionally driven states in a less effective direction.

One challenge is for states to know what their true participation rate is. Berlin said he is sure there is much more activity in terms of work that people are doing than what is being reported. How do states convince recipients to let them know that they are working? When participation did not matter, reporting was haphazard and agencies that provide services did not always go the extra mile to learn about a client's employment status. In addition, states may not have bothered to report activity levels for some recipients who were engaged in activities that were not clearly defined. Now the stakes are a lot higher for providers and for states.

A second challenge involves the mission of the welfare agency. The welfare agency's mission is to help people leave welfare for work. But the agency also offers a range of services for the working poor that can help new job takers secure their precarious foothold in the labor market. Convinced that the agency's main goal is to cut them off of benefits, many job takers do not bother to report that they are working, which leaves the agency unable to offer the wider range of services the client might still be eligible for, and it deprives the agency of a working person who could count towards participation.

Providing child care could be an additional challenge in some locations. There is concern about some states' ability to meet the growing needs for child care that are expected to develop as a consequence of the new participation levels. While the legislation includes an increase of $200 million for child care, many believe that this is a disproportionately small amount relative to the increased work requirements.

How Can States Meet the Standards?

Berlin suggested that states not take drastic action to meet the 90 percent two-parent work participation rate because they are not likely to achieve it. The attempt would consume too many resources and is not worth it because the penalties are relatively small. Instead, he said, states should focus on the all-family rates, and he recommended several strategies for doing so:

Start with goals. "How do you stay faithful to your goals while raising participation?" he asked. Meeting participation rates should not be an end in itself. While participation is obviously important, high participation alone will not ensure impacts on job-finding and welfare exits. He urged states to draw on evidence about the most effective approaches. For example, he said, consider using an earnings disregard to increase the percentage of people who are working and still on TANF. Similarly, consider ways to help people stay employed after they leave TANF. That stops them from having to return to TANF, keeping caseloads lower and, thus, indirectly helping the participation rate.

Rates are less critical than activities. Berlin said that more important than the participation rate is what activities count and for how long; whether the types of activities in which people participate are ones that can best help them become self-sufficient; the quality of those activities; and who is participating. Thus, for each potential activity, states should ask: Is it countable? Does it advance the overall goals?

Get everyone on the caseload involved up front. Programs must work with everyone, not just the most employable or most interested, in order to have at least 50 percent count as participants in any given month. Even if funding were plentiful and case management and outreach were flawless, in any month some people would not count as participants. There are two reasons for this. First, there will always be clients who are experiencing a personal crisis like illness or having to care for an ill family member, or have a temporary refusal to participate. Second, program capacity means there will always be some delays in coordinating support services and having clients begin activities.

Draw on evidence of effective ways to sustain work. Research has demonstrated, for example, that case management alone is unlikely to keep low-wage workers in their jobs. Additional strategies, such as targeted placements and re-employment help, are likely to be needed to sustain work. Similarly, earnings supplements can increase employment, particularly for long-term welfare recipients with limited education and work experience.

Background on Welfare Reform in Pennsylvania

After Berlin described the national context, Estelle Richman discussed the situation in Pennsylvania and provided an overview of approaches the state is considering to meet the new requirements. She first gave background information about welfare-to-work efforts in Pennsylvania and, particularly, in Philadelphia. These were among her points:

In the early phases of welfare reform, the state was innovative and successful. Act 35, Pennsylvania's implementation of welfare reform, mirrored the federal TANF provisions in many respects, but had more flexibility. Its "work first" approach, coupled with the strong economy, reduced Pennsylvania's caseload by 54 percent by 2002, leaving the state with a required participation rate of zero because of the federal caseload reduction credit.

Philadelphia, in particular, was at the center of a lot of innovation, as new approaches were tested and expanded. Among the innovations were outreach efforts, including the Community Connections Initiative, in which community-based agencies went into neighborhoods to encourage TANF clients to cooperate with welfare-to-work efforts, and a project in which staff at a local agency made home visits to re-engage clients who were about to be sanctioned for non-participation. Perhaps the most innovative approach was Greater Philadelphia Works (GPW), funded through a three-year federal welfare-to-work grant, which created eight regional service centers with the goal of placing 15,000 clients. Philadelphia@Work (now the Transitional Work Corporation) was launched as an essential component of GPW. With support from public and private funders, the program was developed to help hard-to-employ clients "learn to work by working." It also included wrap-around services to address barriers and improve job readiness and services and incentives to support employment and retention.

With its emphasis on long-term retention through intensive support and case management, Greater Philadelphia Works was a successful model. Over three years, it enrolled more than 15,000 clients and placed almost 9,000 in jobs, achieving an average wage of $7.10 per hour and a 66 percent one-year retention rate. Its innovations included a successful media campaign to motivate clients; a coordinated employer-outreach and job-development strategy; coordination with system partners, including transportation, behavioral health, public health, child care, and child welfare; and specialized services for homeless clients, non-custodial parents, and teen parents. However, when the federal welfare-to-work grant ended, there were insufficient funds to continue the initiative. Still, GPW left a legacy: it demonstrated that having a neighborhood-based system to deliver welfare-to-work services was an effective way to organize those services and that providing intensive support to achieve long-term attachment to work improves success.

The state also developed other welfare-to-work approaches for the hard-to-employ. These included the Maximum Participation Program (MPP), which is still operating, for TANF clients with serious barriers to employment, including substance abuse; physical or mental illness or disability; domestic violence; and involvement with the child welfare system. Clients receive an extensive work-focused mental and physical assessment; case management; a multi-disciplinary team to develop a treatment plan; and connections to medical, mental health, and substance abuse services. The program's ultimate objective is to have clients gradually become engaged in work activities or transition to Supplemental Security Income (SSI). In fact, about 25 percent of MPP clients have been found to be eligible for these disability benefits.

An Increasing Push for Education

Richman said that when Governor Rendell took office, one of the administration's concerns was to address problems with the "work first" approach and place a greater emphasis on career building and more permanent employment. This meant putting an increased focus on education. Richman noted that "my bias is towards education-that is the route to work and out of poverty"-and she provided an overview of three state programs that use education and training to help clients move towards long-term employment:

The KEYS (Keystone Education Yields Success) initiative focuses on post-secondary education. In this new program, TANF clients enroll in a participating community college, each of which has a full-time coordinator who facilitates those students' access to all resources in the college. Richman is a strong supporter of KEYS, which has about 500 students enrolled so far, because she believes that people can come out of this program and get on a career track towards family-supporting work. However, she thinks the new federal regulations probably will not allow KEYS to be included under TANF, so she is looking for a new way to support it and have it grow.

Move Up is an adult literacy program. The program offers GED, adult basic education, English language learning, and other adult education services, including literacy programs blended with job-specific skills training. Currently, 23 counties have Move Up funding to support 3,000 students with less than an 8th-grade reading level.

EARN Centers, in Philadelphia, recreate the neighborhood center approach to delivery of employment and training services that was used by Greater Philadelphia Works. The centers provide clients with access to a full range of services, including skills training, and they are also intended to reduce client churn by using strong case management, good assessment of client needs, and better matching with jobs or training. Currently, three EARN Centers are operating in Philadelphia, with ten more scheduled for start-up in late 2006.

Meeting the New Federal Regulations in Pennsylvania

The question, Richman said, is "How will Pennsylvania meet the 50 percent participation rate without hurting people and while staying committed to education?" The implications of not meeting the participation rate are significant: the state could face a penalty of up to $70 million in lost federal funds. One key action the state is taking is to strengthen its data collection so reporting will be complete and accurate-the state's official participation rate has very likely been under-reported in the past. In addition, the state has made the decision to not address the 90 percent participation rate for two-parent families because it is unreachable. Beyond that, Richman described the state efforts as "a work in progress" and described these initial steps:

In April 2005, seeing what Richman called "the handwriting on the wall," the state began an effort to increase participation in work activities. County assistance offices and contractors were asked to prepare and implement plans to serve more clients so that everyone who could participate would, in fact, start to become engaged. The approach has had an effect: 9,000 more people are engaged in a work activity than were a year ago. The state's participation rate was more than 18 percent in March 2006, up from 7.5 percent in 2004. Still, much more needs to be done to meet the new requirements. The March caseload was 63,800 families with adult members (this excludes families that are exempt because they have a child less than one year old). By June 2007, 50 percent (31,900) must be in work activities that count for the required number of hours each week. Currently 11,675 clients meet the participation requirement. To reach 50 percent, approximately 8,000 additional clients need to increase their current hours of participation, and another 12,000 need to become engaged in activities that count.

The state is "chunking" the caseload-breaking it down into categories-to be able to analyze stresses on each group and define targeted approaches. The categories include people who are not in any work activity; people who participate, but at fewer than the required hours; people participating fully; new TANF recipients; parents with children under and over age 6; and teen parents. For people who are participating fully, for example, the state wants to facilitate their continued participation by removing obstacles and providing incentives. For people who participate, but at fewer than the required hours, the approach is to explore options with them for increasing their countable hours. For people not in a work activity, the approach will include an assessment and placement in an appropriate and countable activity-and if the client has a good reason not to participate, the state will grant them an exemption. Richman added that these approaches require the state to do strong outreach to TANF clients, community partners, contractors, county assistance offices, and employers, not just to engage people but to reinforce the core belief in the value and benefits of work and self-sufficiency.

The state is also focusing its efforts on specific counties. Five of the state's 67 counties have 70 percent of the TANF caseload. Thus, the state is focusing on the larger counties and, especially, on Philadelphia and Allegheny Counties, which together have 60 percent of the caseload. (Philadelphia alone has 45 percent.) More than half the counties in Pennsylvania have fewer than 300 TANF clients and, together, only 6.3 percent of the state's caseload. Achieving 100 percent participation in all of those counties would only increase the state's participation rate by about 5 percent. Thus, the state will give those counties what they need to improve participation-such as funds for transportation so people can get to work-but focus its efforts where it can have the greatest impact on the overall participation rates.

There may be some people who should not be counted in calculating the participation rate. The rate is calculated by dividing the number of people who meet the work requirements (the numerator) by the number of people on TANF (the denominator). Having a smaller denominator effectively decreases the size of the numerator necessary to reach 50 percent participation. Thus, the state is also looking at approaches for decreasing the size of the denominator. For example, Richman said, some new clients are able to work but cannot until essential pre-conditions are met, such as arranging for child care and transportation. She would like these clients to be removed from the denominator during their first two months on TANF because it takes that amount of time to get those essentials in place. She also wants to identify people who are TANF clients but should be in a different support program-for example, people who are on psychotropic drugs over the long-term and are unlikely to become able to work.

The state faces a number of other challenges to meeting the requirements. Richman emphasized that the federal definitions of countable activities, which will be issued in the regulations in June, will challenge the state's ability to improve clients' literacy levels and support post-secondary education. The state is going to have to develop approaches for blending education into activities that count. In addition, it needs significant additional funding for child care and increased resources for support services, employment and training services, and transportation. Finally, the state needs to identify more family-sustaining jobs. One approach state officials are using for this is to go back to their contracts with vendors-if a company is earning money from the state, it should, in turn, be willing to hire people on TANF.

Question-and-Answer Session

Following the presentations, participants had an opportunity to ask questions and raise concerns. These were among the issues they wanted to learn more about:

Prevention efforts: What effect will the intensified focus on TANF have on the state's resources for prevention programs? Richman said that the state has to stay committed to prevention because otherwise it will never make any progress. It is, for example, expanding the Nurse-Family Partnership, a program in which nurses visit low-income women in their homes during pregnancy and the first two years of the child's life. The state is also working with Philadelphia's Adolescent Violence Reduction Partnership, which focuses on the highest-risk 10- to 14-year-olds. But Richman also noted that when the state focuses on prevention, it has to give up something else; there are always conflicting priorities.

What counts toward participation: Richman said it is still unclear what specific activities will count as participation. What about parents who are participating in the Head Start program? Or mothers staying home to take care of children with mental retardation? Or kinship care-relatives other than a parent taking care of a child? Will these people be counted as participating? Or might they count as an exemption from the denominator-that is, not be included in the TANF caseload for the purpose of calculating the participation rate?

Getting accurate data on the number of TANF clients who are working: Several people wanted to know about effective strategies for getting clients to report their work. A typical approach is through pay stubs, but it can take a long time to get these, so there are no hours in the reporting system for some clients even though they are working. A number of people offered suggestions. These included linking with the state Department of Labor and Industry to find out who is working and being attentive to the literacy level and content of notices sent to clients asking them to report. Richman said that the state needs better reporting and standards for verification, and she asked people to contact her with suggestions. She also noted that there is a category in the legislation called "self-directed activities" that count towards participation, and it most likely includes work like house painting. The problem is, how can they identify people in this kind of work and get valid documentation so the hours can be counted?

Time frames for the regulations and when the reauthorization changes go into effect: According to Berlin, the federal regulations will be completed by June 30, but the law is in effect now. Richman added that not knowing what will be in the regulations is hampering the state's planning. Rumors change about what is included and how penalties are going to be applied. For example, if a state is making good progress, will that affect the penalties?

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